December 6, 2020
By Allen Bettis
The COVID-19 pandemic is changing the way private company boards think about risks in leader succession. The sudden death or incapacitation of the senior leader of a family-owned company can spark a crisis for both the business and the family. In the face of such a shocking event, what needs to happen in the first week, first month, and first quarter—and who will be authorized to take action, is the stuff of an Emergency Leader Transition (ELT) Plan. Most family and private companies don’t have one that would be effective, i.e., one that covers the essential elements, was approved by the senior leader, documented, and shared with the top team. The need for an ELT Plan can be a challenging topic to bring up at a board meeting, but many directors are finding that the process of creating one builds a stronger company.
Prevent a Spiraling Crisis
Where companies are heavily dependent on the senior leader for every important decision, a sudden loss of that leader can spark a crisis that spirals into chaos. In the ensuing confusion about roles and authority, managers may be slow to act. Uncoordinated team leaders may convey inconsistent messages. With those missteps, unfounded rumors may circulate among employees, customers may pull back from new purchase plans, lenders may limit credit, and anxious family owners may worry about their investment. In such circumstances, a sound ELT Plan in the hands of a prepared team can make the difference between an orderly transition and a disaster.
A Three-Step Planning Process
The most useful ELT Plans are created through a three-step process:
By initiating the creation of this plan, the senior leader is providing guidance for a swift, coordinated response to a possible future event that will have unpredictable dynamics. Therefore, the plan should not attempt to give specific directions about steps to follow in all possible situations. Rather, it should designate one or two interim leaders who will be authorized to address immediate challenges and organize a transition planning team. For example, if the current senior leader is chair and CEO, the plan would designate a new COO and an interim board chair and recommend others who might advise the transition team.
An ELT Plan should not be used as a short-cut method to select the next CEO. As the “emergency” stage passes, new business challenges and opportunities may arise, requiring a CEO with additional skills and broader experience. The interim COO may become a strong candidate for the CEO position, and yet the board may want to compare his or her skills and experience with other candidates before making a selection.
Key Elements for the Plan Document
When an ELT Plan is done well, the process of creating it may reveal further steps needed to enhance the bench strength of the management team, organize the family owners, or advance the capabilities of the board. It also increases appreciation for the senior leader who is demonstrating the foresight to prepare for the transition and whose vision puts the interests of the company first. In one such transition after shocking loss, the new chair and CEO were proud to say: “We are all in this together. We lost a great builder of our family business, but because we were prepared to step up, we are doing our parts to handle the challenge. We are able to grow a stronger business and a bigger future.”*
*For a detailed case example, see the story of the Morgan Companies in: “Creating a Board of Directors for Continuity and Growth,” by Allen Bettis in The Life Cycle of a Family Business, (Globe Law and Business Press, London, 2020).
Allen Bettis has advised boards and owners of large, multi-generational family companies around the US and Latin America and is a frequent speaker at family business conferences. He is the author of The Family Business Board Handbook, Vol. 2: Governance for Agility and Growth published by NACD. Contact: firstname.lastname@example.org.